June 19, 2009

I'm slow writing about this, the Hernandez v Koellerer match earlier in the week created quite a fuss in the media after some seriously dodgy betting patterns occured pre-match. Some of the coverage was laughable (William Hill suggesting suspicions were aroused after a £4000 bet), but most of it was alarming for those of us honest in-running bettors. This sort of thing only gives those who seek to limit in running betting more ammo. Let's hope the integrity teams at the various bookies were able to trace those that placed the bets, though these things are incredibly difficult to prove.

..(And it's quite likely you did miss it), was made "live" on their Twitter page. I say "live", but some readers should be warned that some twitter feeds are delayed. ;)

Seriously though, the biggest (and best) Grand Slam tennis event, publicising it's draw on twitter!? You cannot be serious!? Apparently they are. What we received was a mangled, mis-typed bunch of around 7/8 select matches from the entire men's and women's draw. Hardly professional, or informative.

In previous years we have at least heard the names coming out of the hat on Radio Wimbledon. Even if we were treated to laughable commentary at the same time, this was vastly superior to this year's draw. Surely this should be on TV, if they can show the FA cup draws, then surely Wimbledon, the BBC put such effort into their coverage, this should be a shoe-in.

Does anyone know who "Josh Goofa" is? Or why on earth we were told that Safina could have a potential "showdown" with Vaidisova in the 2nd round? Do they follow tennis?

Importantly, it seems Djokovic and Federer are in the same half, leaving Murray and the potentially injured Nadal in the other. Nadal will announce whether he intends to play today after an exhibition match against Wawrinka.

Something I've really noticed during the last few months (and from time to time in the past) are the problems that my own expectations cause me when I'm trading, and probably in other areas of life. To expect is to open yourself to the unexpected! Crazy how stupidly simple that is isn't it.. without expectations, there is no unexpected and thus a huge chunk of trading pain is removed.

I remember reading "Fooled by Randomness" by Taleb in which he would call negative experiences in the markets, emotional "pangs". These I'm sure are very real, we've all suffered when we've lost, if you place enough attention on a price I'm sure it's possible to suffer a 'pang' on the loss of a single tic. It struck me that, these really only occur when something doesn't live up to your expectations.

Yet this is highly counter intuitive. How do you enter a trade or a bet without some form of expectation? The answer of course is from a probablistic mindset. You reduce decisions down to their probabilities of going one way or the other, then compare the implied odds in the market. That's easy to type, and not easy to do consistantly, whether you believe in it or not.

The above paragraph also suggests it's possible to gauge where the market will be at various times. Another expectation which is rarely perfect, since markets (and the events they are based upon) are random entities. Anyone / anything can destroy the position of the market in a blink... with this in mind, perhaps it's best we expect the unexpectable! That way we'll still be in the right frame of mind to act appropriately when it happens. And while we do that, do our level best to estimate those probabilities each time we enter a trade.

June 11, 2009

It's always a sorry sight to see another blog biting the dust. I have to say it took some guts to post the loss he took, and particularly how it happened. But he also did the rest of us a service, it's a reminder how fragile the human mind is when it comes to gambling, and it's certainly not a reflection on him personally. He makes a very good point in his post, trading and gambling for a profit is not as easy as it appears online.

There are a lot of videos about showing how to trade a profit and they make it look damn easy (and it is a very small percentage of the time!). What we don't see are videos depicting losses. People simply don't post them, I guess they don't serve a purpose when you are trying to sell something or make yourself look credible.

Surely it's time we started posting some losses, and perhaps some commentary on why we lost. It's difficult learning anything without failure and the inevitable drawdown. No one's perfect. There's a big gap in the market for money-losing videos it seems.

June 10, 2009

There's an excellent article over at Philip's blog which describes one of the trickiest occupational hazards we gambler's and traders face. Namely, the ability to be losing money whilst executing our edge. Losing runs, which have a positive expectancy, can be one of the hardest things to deal with mentally. But only if you don't 100% believe;

That you have an edge. You need to have done the analysis, the statistics, the maths, prove it.

That the results you are witnessing and going to witness are randomly distributed. As Mark Douglas says, "there is a random distribution of wins and loses that defines an edge."

Granted these two aren't always easy to accept. 1) If we are trading, and trading in a fast moving market it's not straight forward sometimes to know we have that positive expectancy. Buying and selling can be a messy affair if we let it get away from ourselves. We have to keep what we are doing as clean as possible, quantify each trade. Trading rapidly is fine, as long as our primary focus is to open and close at spots that offer a probablistic edge.

Point 2) We're all familiar with losing runs, you start to question what you are doing. Again, quantify everything, manage your bank roll properly, and... see point 1.

June 09, 2009

Several blogs and websites have caught my attention while I've been away. A common feature of these is that they relate to trading horse racing markets pre-off. ie. Catching price movements in the market and closing their position before the race begins.

This trading is of course, nothing new, it's been going on on the exchanges for years, but recently there seems to have been something of a tipping point in the online community. This is perhaps evidence of the cumulative effects of dedicated software, forums and seminars / courses that are being run (particularly by BetAngel and Peter Webb). It appears there are a growing number of successful individuals coming from these courses, though that is of course difficult to gauge since we only hear about those that are doing well. The others tend to keep their heads down.

Not that this is a criticism of the courses themselves, or of horse racing trading. I'm sure the courses are excellent, and if I'm honest I'm tempted to go on one myself, even if I believe their would be little I could learn. What I do find interesting though is the sort of profits begin realised by certain people in such tight markets, especially as it's something I've never really been tempted to try. Personally I have always prefered slightly looser markets, with much larger potential movements in odds, my belief being that I can make much more from these larger swings than I could in the racing markets.

This I still believe is true, it's difficult for example to see how someone could make more, or trade more perfectly (from what we are lead to believe) on horse racing than the increasingly well known Adam Heathcote . Yet it is possible to make much more than he does, trading sports with perhaps a similar level of skill that Adam possess with the horse markets, and I do believe he is extremely skilled in what he does.

In fact it's my opinion that anyone who can eek out a profit trading horse racing markets consistantly is very skilled, they have my respect. Not only do you need some technical trading knowledge, but (depending on their ambition) also a fairly large amount of horse racing market knowledge too (this is what I lack). For example I am fairly sure the different types of races are likely to move price in a different fashion to one another - I wouldn't have a clue how, neither do I have any idea what a 'horse playing up' looks like!

Something I do find fascinating is the use of technical analysis tools and charts in the same way they might be used in the city. This is something I've been doing to a lesser degree for years, but these guys seem use them much more actively.

Anyway, my intention here is to point you in the direction of some interesting blogs, the writers of which like to trade horse racing (among other things). Some of them post their profits, some make more than others, but that doesn't diminish the skill level or interest of those that make less, arguably it's just as / more important to read the blogs written by people who aren't doing so well. A lot can be learnt from reading about other people's trading exploits.

June 08, 2009

It's been a while readers! I hadn't forgotten you, I've been taking a long break from blogging and in some ways, checked out of the gambling routine for long periods too. Not that I haven't been trading, I have been working as hard as ever recently, but I think it's fair to say, the whole premium charge fiasco at Betfair knocked the stuffing out of me and took a lot of the gloss off. Not that it was particularly glossy to begin with.

Things have changed. Not just the noticeable stuff - the money missing from my account on a Wednesday (if I'm lucky enough to win, which hasn't always been the case), but there feels to have been a change in attitudes in the markets and this is not just down to the charge. Initially the purse stings were well and truly tightened due to the economic climate, there seemed fewer people on Betfair. As time has gone on, liquidity has returned, but in my opinion the average quality of the opposition has rocketed.

This is very apparent on the smaller tennis tournaments. There are now a significant number of people "courtside" at every tournament these days. Which in some ways is good, since the markets move a little more predictably, and the scoreline is effectively shown live in the Betfair markets. This should, in theory be good for me, since I don't rely on speed. The reality however is that they mop up all the "dead money", selling it back at a discount to the market. The removal of such money on a regular basis from the markets can only be detrimental to my own personal efforts to play on a level field with other more traditional exchange users.

Saying this, I believe there are some courtsiders who like to take a view, and perhaps this is a more likely direction for courtsiding in the future. They are more than welcome.

I've struggled for long periods this year and at the end of last, for a few different reasons. Initally the premium charge really played with my head, would I have to change strategies? I couldn't resolve how (with my type of P/L) I was going to remain profitable. I am semi trader, semi punter. I have up and down periods, then get on great runs. It appeared to me that really I should have no business being charged, since my lucky runs would now be heavily penalised.

I've been at this game for 7.5 years, and if I'm honest I felt like this was the beginning of the end (for exchanges / Betfair - not for me). It's disappointing to see the lack of change that has occured since the introduction of the PC (premium charge). The move to Betdaq has not occured as hoped, though some liquidity has gone their way.

I've also got married in that time (another reason for not posting, though the honeymoon wasn't that long!)... and along with it a re-realisation of what the important things are in life.

Combine a marriage and the PC, and you do begin to wonder if this toil is worthwhile. And my conclusion is, yes! But only after much soul searching, time off and a recharge of my batteries. Ive done a lot of reading during this time, I've learnt a lot, but nothing I have learnt really measures up to something I read on Peter Webb's blog about your heart having to be in trading to make it work. (Or was it someone else writing about Peter..)

I compared myself 7 years ago to earlier this year, the difference was huge. I had a hunger for the job like nothing else back in those days, I would trade at work, come home and trade for anther 5 hours, I couldn't get enough of it... it was an all consuming passion. This year, frankly I couldn't be arsed with it, there were distractions that were much more appealing, a life away from the computer that was more enjoyable and yes - I have made enough money in that time to be 'comfortable' for some time. But not, crucially, to retire on. So, it's back to work, with new goals, particularly now that I have 'our' future to think about too.

I have let go of the PC as a distraction. I've put into place some extra commission generating strategies, and refocused. My goal initially was to dedicate myself to the 6 week period that includes the French Open and Wimbledon. And what a French Open it was. I'm very happy Federer was able to claim a French for the set, he deserves it, and he got the monkey well and truely off his back. I wouldn't be surprised to see him reclaim Wimbledon now with the pressure off.

Nadal's shock exit stunned me for a couple of days. I played the match cautiously, it was one of those where I didn't quite believe Soderling was going to do it, but the prices were always good on him rather than Nadal, I sat out for the most part only having a small bet on Soderling as he neared the finish line. Nadal fell foul of dropping his groundstrokes far too short, partly because he was retrieving so many shots, but also there was a lack of penetration to his shots, too much spin. It reminded me of when he struggles on hard courts at times.

I also very happy Kuznetsova won the ladies title. She aways struck me as an underacheiver, someone who normally suffers with nerves and pressure. When she hits with a relaxed and controlled freedom, she's great to watch. Safina had a complete mare in the final.

What next? Queens begins today, I think the weather will be good for some of it, though it looks dodgy for this week at times. Grass court tennis is a different mindset, lots of held service games.

I also want to keep the blog more updated, and be more linky. There's a load of fantastic blogs started up in the time I've been away, I'll be posting links up to those soon. I hope your trading has faired more consistantly than mine.

Now if someone could knock up a spreadsheet (or separate application) to copy bets across the platforms instantly, and make this available to all, we can then begin making serious strides towards having choice between a real exchange (Betdaq), and it's greedier, premium charging, skim matching rival.

September 23, 2008

Unless you've had your head in sand for the last couple of weeks, you'll be aware that Betfair announced that from yesterday, they would begin to levy a new charge on "successful" accounts. This new "Premium Charge" will, according to their statements, affect 0.5% of the userbase. For your reference, here are those details I'm sure you are overly-familiar with by now, even if you are presently unaffected, pay attention, because you might be in the future,

"Customers will only be considered for the Premium Charge if, over the previous 60 weeks, they satisfy the following criteria:

Account is in profit;

Total charges paid (commission generated,
Transaction, Data Request and Premium
Charges) are less than 20% of gross profits; and

Bet in more than 250 markets.

There are two further conditions that are also calculated:

Any single win that constitutes more than 50% of gross profits over the previous 60 weeks will be excluded from the calculation; and

Each customer will have a 60 week allowance of £1,000 against the Premium Charge i.e. the customer will not pay the first £1,000 of charges.

Each week the customers who meet all the conditions set out above will be charged the lesser of:

The difference between 20% of the previous week’s gross profits and the total charges paid during the week; and

The difference between 20% of the previous 60 weeks’ gross profits and the total charges paid during that period.

Our pricing strategy is changing as from the 22nd of September. The first Premium Charges will be collected the following week - week commencing 29th September."

A further detail neglected in much of the forum discussion is that on the date of the 29th September, all accounts that have a profit and have traded 250 markets in the last 60 weeks are assumed to have been operating at a level equal to paying 20% of gross profits to Betfair. If in the first week, the commission you generate falls short of 20% of gross profits, then this will be taxed the following week. Apparently this doesn't constitute 'back-dating' in the PR world.

Another under publicised fact about this charge is that the 20% figure is now the MINIMUM you will pay Betfair in commission on gross profit. That's right, it's now not about trying to find ways to get under 20%, but how to make sure you are paying the minimum 20% rather than more!

Betfair are very keen to point out that not many people are affected by this on a weekly basis. All this means is that if you are not charged, you are already paying above the 20% mark.. Do you feel better about things now you know this?

I've taken quite some time to put this post together, there's been a lot of messages asking if I'm affected, where's my blog post on it, what's going on?? I had to give time for the dust to settle on this one, it's such a serious topic and a complex one too that it took me a while to calm down enough to begin to understand it.

Yes, I am affected by it. Due to the up and down nature of how I've been betting and slowly altering strategies, it is difficult to tell just how much this would affect me. (If you think you might be affected, ask Betfair for a spreadsheet breakdown of your last 60 weeks.) On current form I believe this will cost me up to 6 figures per year (my last 5 weeks would have cost me an extra £29k !).

This is a good example of where this calculation falls down and is far too unspecific in who it targets. Lets get into Betfair's reasoning behind the charge and then some definitions that should show why it is so unspecifically greedy.

On Betfair we have a variety of winners, those that win consistently, those that work out a profit on balance. Over time, winners remove the excess profits they make and carry on using the site. This money taken out, is never recycled on the site for other people to win, so it leaks away into winners' bank accounts and must be replaced somehow. This, according to Betfair, costs a lot of money in advertising to attract the required new blood, more in fact, than the amount they are gaining from these winning accounts in commission.

I don't think this can be argued against, this money does get extracted at a fast rate by some users. In my conversations with other winners we have often wondered where the money actually comes from. Betfair believe it is their costly advertising that does the leg work in attracting this money, this must be true to some extent. There's been much conjecture over time about whether it is winners or losers that are the life blood of the exchange, this move settles the argument conclusively in favour of losers.

But what of these costs? As a chargee, my first (over?) reaction is to tell them to stop spending so much. Surely this is not just about advertising, it's overheads and it's spending. The company has expanded at an incredible rate, 1200+ employees, a very nice HQ, innovative technological investments... and also numerous additional mini-sites that few surely find useful. They have their fingers in many pies. "Pies" which are increasingly focused on extracting money directly from customers, rather than through commission on their exchange, sounds a bit like a bookies doesn't it? See the newly unveiled Betfair Arcade for example - this is a shameful expansion into online FOBTs (Fixed Odds Betting Terminals), designed to take money from the less clued up gambler and those with problems, completely and utterly against the ideals of a betting exchange.

This sort of activity I guess is predictable. As a company grows, the original ethos is lost as costs grow and profits become the sole focus, as do employee bonuses.. There is an undoubtedly faceless feel to Betfair these days, buried deep in their midst (bloated underbelly?) are boards, think tanks and departments focused on how to get more money from the people using their site. As a business, you can't argue with their aim to make money, as long as it is done fairly.

"Fair" is something this new charge is NOT. It affects everyone, including those that have been told they would not have been charged in the last 60 weeks. I think it may be helpful here to define 3 key types of Betfair player,

The botter, these people program software to bet on their behalf automatically, through the day, on various markets. Because of the automated nature of their betting, they can do so with sufficient speed and efficiency to vastly reduce the chances of not winning. Dependent on strategy, some bots will win on virtually every market they play.

The trader, we'll classify these as humans who like to buy and sell (back and lay) more than once (usually in-running), similar to how you might on a stock exchange. As a result they often end markets with p/l's showing a win on both players or often a loss on both players. There are more varieties of styles within this classification than the others, some traders will take more risk than others - holding positions for longer, basing their actions on the event they are trading. Other traders will scalp, take much smaller risks, get in and out very fast and base decisions upon the market alone - arguably they are more consistent winners.

The punter, he's an old fashioned gambler who bases his decisions on value or opinion before the event begins and runs it to conclusion.

All of these players are hit by the new charge. But how can this be right? Clearly some people can afford this new charge more than others. "Afford" in this case is related to risk, value and the regularity of that user's profits.

Users who rarely lose, with winning books on any outcome can afford to pay more than others. (I'm not in favour of this charge, but I'm being realisitc.) Particularly botters, who use automated software and spend little time themselves actually placing the bets. If you switch on a program and sit back while the funds come in, then personally I think 20% is probably cheap, considering previously you were paying 2% and no tax. There is very little risk in what these users do, and "risk" I believe is the valuable commodity Betfair want to encourage with this charge. See the Betfair forum for evidence of one or two botters not bothered by the increased payment.

The next group with lowered risk are the traders. A highly contentious group, with a myriad of styles and levels of risk. Much of the debate when this charge was announced was centered around this group of users and what their worth to the site is. In fact this has always been passionately argued over, even before this charge, I could perhaps write a book on the subject.

It's the variety of trading techniques which make this group difficult to charge accurately or gauge worth to the site. Few people trade the same, and few trade consistently. Some take risks and build large positions, others are buying and selling very quickly. It seems unfeasible to charge everyone the same, when some win very often, and others provide as much risk as any gambler does. The most important distinction here is that these are human, manual traders, placing bets. Humans make mistakes, errors of judgement or plain accidents, no one can win 100% of the time and this must be taken into consideration. It is impossible to see how this group could be charged as much as an automated program.

The unfairness of the charge is most easily demonstrated by looking at the plight of our gamblers. If it was unfair to treat all traders the same, it is even more so to expose out-n-out gamblers to the chance of being charged. The vast majority of people that simply punt, will already be paying above the 20% almost all the time. This is fine, the edge that they seek in their bets will have been preserved (dependant on their handicapping skills).

But what happens when there is a week where every bet wins? This is quite possible, infact it's probably a certainty to happen one week - given enough weeks. The commission generated on gross profits they paid during this week dropped to their commission rate divided by 2, and their profits for the week took the average commission on gross profits over the previous 60 weeks well below 20% (quite a mouth-full). They will now be charged the difference.

The edge on all of these bets has been decimated! A year's hard work of edge preservation has been destroyed in (what used to be called) a lucky week. There is no way these people should be charged.

"Commission generated = (Commission + Implied Commission) ÷ 2" is the calculation used to reach the figure that will need to be made up to 20%. "Implied Commission" is the commission that would have been paid on a losing bet (by the person / people who won). This I believe is an average figure taken from the rest of the market participant's commission rates. According to Betfair this is usually between 2.5% and 3%, but we have no way of knowing the precise figure at the end of a market.

Dividing by 2 really can mess you over though. In the case of our punter who has a lucky week (with no implied commission), his commission generated is half the amount of commission he's already paid. I had one such week displayed on my spreadsheet, my commission generated was actually 1.4% of my gross profits!

This whole thing is calculated terribly and over simplistically. There are running jokes about the ridiculous small print on Betfair, but this is not a calculation they should have attempted to simplify. What is needed is a actuarial style calculation based on what we can each "afford" to pay. And this will vary as our method of betting changes, few people bet the same all the time. This can't be worked out over the course of one week either, I suggest at least a month.

All of this discussion is nullified now we are into the charging period. The charge appears to be going ahead, despite being ill conceived, rushed into effect and without preparation of the reporting features we are entitled to have, so we can see how much we are being charged. To some, it seemed heavy odds against getting this far, now we are here, it looks as if there is no going back.

Talking of odds, this is a huge gamble by Betfair. A punt of crazy proportions, perhaps their whole business... certainly their exchange image, by the way, this bet has already been settled and paid out - they lost!

For their sakes I hope they have done their own calculations right. This is effectively "all in" by Betfair, gambling that masses won't leave and liquidity will be intact. As a customer, it shows incredible arrogance. They are abusing their dominant status in the Betting Exchange market. They claim there is no such market, instead aligning themselves with the much larger Betting Market as a whole. Convenient, but not their real competition.

A betting exchange is something vastly different to what bookies offer, populated by punters of a different mentality those on the street. Their direct competition is other exchanges, not bookmakers. Exchanges thrive on liquidity, without it - no punters, and with no punters - no liquidity. That is a strangle hold over their competition and they know it. The newly published Betfair Arcade and comparisons with mainstream bookies demonstrates Betfair's intended direction perfectly.

Can they get away with it? Will liquidity cross the chicken and egg style divide and disappear to other sites? It's tough to know, but the signs are that there is massive discontent among a very large portion of the users who feel abused by this charge. Most of these people are traders (and many punters too), who defend their right to buy and sell passionately. This is, and always was, one of the beauties of the betting exchange concept. Many in this group can afford the charge, but most can't. They are winning and losing types, they do provide meaningful liquidity and I believe it's a mistake to risk losing a proportion of this group.

Their closest rival is Betdaq. Previously the liquidity there was a mere 5% or less of Betfair's, but it is improving, and quickly. Rumours were that 800 new accounts opened the day after the charge was announced.

Their commission structure remains similar to the way Betfair used to operate, and if you open a new account now, citing the charge at Betfair, you'll be given the 2% rate until the new year. This is a good effort from Betdaq, but they'll need to show a lot more effort, and quickly for things to tip.

There is momentum for change at the moment, but with every passing day it dissipates. Luckily there are some key events ahead which might provide much larger tipping points. The first of these is when the charge is first levied next week. Expect the amounts to be published on the Betfair forum, along with much annoyance.

The second of these and potentially the largest, is the launch of 3rd party trading applications pointing at Betdaq.

The problem with gaining liquidity and market share for a small exchange has always been the effort required of it's users to post bets with the prospect of not getting matched all day. But if this never occurs, the liquidity will never grow. It costs time and effort to achieve, and gamblers are not known for their patience. The launch of one click ladder interfaces for Betdaq will remove the cost in time and effort required to do this.

I fully expect this to provide an massive boost to in running sports on Betdaq. It will be easy to open up applications accessing both Betfair and Betdaq and bet into both at the same time. Before long, we will have a choice. The BetAngel team are working on their application as we speak.

Indeed it becomes very apparent that it's this 'liquidity divide' that Betfair believes provides the protection for their gamble. If the divide is made easy to cross, then they are vulnerable to a fair marketplace and market forces. In a fair market, I very much doubt one company charging 20% against their nearest competitor charging 2% would survive such market forces.

Will I continue to use Betfair? In the immediate future yes, and probably longer term too, but if there is a switch, then less so. I don't think it's wise to overreact and leave immediately (we know what happens to over-reactions). I can afford this charge, I don't enjoy the prospect of paying 2-4 times as much money to Betfair, but I will still survive after it.

Saying this, I am not doing much betting at the moment, I'm working on my strategy and figuring out what is the best course of action to minimise this payment. I do take issue when a company arrogantly uses it's position to charge it's customers, the introduction of the Arcade has also left a nasty taste, so I'm loathe to add liquidity to the exchange if I can help it.

It has been suggested that we arbitrage our way out of the charge, not only by other users, but by Betfair themselves! They were banking on that happening in my opinion, perhaps they might even have expected a rise in liquidity. Either way, I find the prospect of arbitrage simply to nullify the charge's effects more than a little self defeating. You provide more liquidity and you pay the commission they were going to take anyway, I won't be doing this if I can help it.

My aim is to help provide more liquidity elsewhere, and to wait for the new BetAngel product for Betdaq to arrive before beginning to bet into both exchanges again. I'm sure there will be some teething problems at Betdaq. With the added activity, their site may well suffer to begin with, I think it's wise to expect this. Betfair has also suffered downtime in the past, we all got up and carried on, the same will apply.

I think it's in everyone's interests that we have a fair marketplace with decent competition and choice. If we can achieve this through providing liquidity elsewhere at the same time as Betfair then we will eventually have that choice, the easier this is made, the better for all of us using the exchanges. We have to work together to make things change for the better, simply allowing such market dominance and arrogance to go unaswered is not the way forward.

There may be lessons to be learnt here by all the exchanges however, and that is, the issue facing Betfair's costs could eventually affect them all. The money lost does have to come from somewhere, perhaps the other exchanges may be wiser examining the way their commission structures work ahead of time. Losers and risk takers it would appear, need much more reward for their efforts.